Posted
by
timothy
on Sunday March 24, 2013 @05:37PM
from the biggest-portion-is-the-lion's-share dept.

New submitter F9rDT3ZE writes "Salon writer Andrew Leonard examines the U.S. Treasury's Financial Crimes Enforcement Network's (FinCEN) first 'guidance' regarding 'de-centralized virtual currencies,' noting that Bitcoin's supporters call it a 'currency of resistance,' while others suggest that 'the more popular Bitcoin gets, whether as a symbol of resistance or a perceived safe haven in financially troubled times, the more government attention it will inevitably draw, and the more inexorably it will be sucked into existing regulatory structures.'"

That too. Indeed, those are a perfect matching pair: If you tax it, you have a good argument to control it (tax evasion), and if you control it, you have a good argument to tax it (in order to pay for the control). So no matter which one you introduce first, the other can easily be added.

This is one of the central insights of a book entitled Seeing Like a State [amazon.com], basically that all sorts of disastrous policies have been implemented not because they were likely to be successful at solving some particular problem (e.g., Stalinist collectivization of agriculture gave peasants a certain area of land, regardless of its quality, rather than the traditional division of best-medium-poor lands in roughly equal quantities to each family in a village even though this made it almost impossible for an outsider to identify who owned what) but because they made people's actions more visible to the state and thus more controllable (and more easily taxed).

The alternative way of looking at that is that the State is simply the legislative and administrative expression of the democratic will of the People, and that if goods are to be owned jointly and equally by all the people, then of course you need to make sure that no one is sneaking more than their fair share; and that, even if you don't have a communistic system and there is still private property, you need to be able to identify assets for tax and redistribution.

I don't imagine this interpretation will go down very well on slashdot.

The idea of Bitcoin, I think, is to give up on the idea of asking the state nicely not to control something, and make something that the state, whether it wants to or not, can't control.

That actually addresses the question in TFS: Will legitimacy spoil bitcoin?

First, you have to achieve legitimacy. In the USA, the power of currency, essentially, belongs to the federal government. If they perceive a threat (or simply a challenge) to that power, what do you think they will do? Hint: It's going to be directly related to the term "legitimate."

The thing about the assumption that the state "cannot" control something, is that it is almost always entirely wrong. This discovery is almost always accompanied by wailing and gnashing of teeth.

There is only one condition under which the state cannot control: When the state itself has been dismantled. And there is absolutely no sign of such a thing, even well out on the horizon.

Consequently, the answer to the question in TFS is: No. What's going to "spoil" bitcoin are actions of the state. Guaranteed. It won't be legitimacy, because that's permanently and irrevocably out of reach.

How long would it take the NSA to destroy the bitcoin by devaluing it? Give you a hint, they build silicon to do whatever the hell it is they want to do. No problem hoarding bitcoins and then devaluing the currency in one huge move.

How long would it take the NSA to destroy the bitcoin by devaluing it?

Why would the NSA/CIA/ETC want to destroy a way for them to fund whatever they want wherever they want with a system they can game to be invisible to oversight? Hell, they probably funded the invention of bitcoin.

No matter what you trade, if it has value, the state will look to control it's function.

So far, the main entanglements seem to occur because people what their bitcoins to be exchangeable with other currencies, particularly USD. Whether or not you think they are a terrible idea, the (copious) regulations that (sometimes, if you aren't big and important enough) cover bank-like institutions that deal in transactions large enough to be of money laundering concern aren't exactly new or surprising.

It would be a bit more novel if they were to go after bitcoin-only transactions floating around in the aether; but if the bitcoin system is going to link to conventional currencies, it isn't a huge surprise that regulations from conventional currencies will start to apply at those links. Not wholly unlike connecting a VOIP system to the local POTS. There are some ghastly hellholes where the VOIP simply isn't legal at all(though fewer of those can back it up); but a lot more where you can do whatever you damn well please so long as it's VOIP only; but once you start interconnecting with the POTS system, you get all the exciting legacy regulations associated with the incumbent copper for the last 50 years.

No matter what you trade, if it has value, the state will look to control it's function.

Everything that begins free and open inevitably evolves towards lame and bureaucratic as governments and big money corporations become involved. Or, rather, government gets involved at the request of big money corporations.

"You have a bitcoin. Great! Now how do you know that it's unique? The transaction was signed? Fine. But how do you know that it was legit before you received it?

No matter how you slice it, there must be a central authority to indicate which are real, and which are false. A hack there can cause all flavors of theft, fraud, and forgery. If you have no central authority, then you risk fracturing your money supply at the exchange level, with each exchange becoming its own authority."

Having come up with a decentralized P2P solution to this problem is the reason people are so excited about this Bitcoin thing.;)

Every piece of every Bitcoin ever to exist has a transaction trail from it's point of origin to the current address at which it resides. Verifying these trails is what miners do. It isn't simply that you send me some bitcoin and I trust it or I trust the hash. You send me Bitcoin and the network begins validating the transaction from the point it was mined to you to me over and over again with it eventually becoming part of that trail.

In order to have even the tiniest minute fraction of fake Bitcoin you'd have control >51% of all the mining power. The more people mining, the harder that feat is to accomplish. The Bitcoin network can determine if someone actually has >51% btw.

The death knell to bitcoin will be mass adoption. When millions of users are making transactions every day the miners will be unable to keep up with the transactions and the network will slow to an even more glaceral crawl. Already it often takes 20 minutes or more to validate a transaction.

Same applies to VISA transactions. But nobody would ever commit 10^5 visa micro-transactions a day either for the same reason. Transaction fees would make it utterly pointless and counter productive. You'd inevitably switch to some sort of internal coins/points system for the majority of transaction and transact with VISA once a month or so.

Even iTunes already witholds processing puchases as they happen, and aggregates a day or two worth all at once to minimize their fees.

Alright, riddle me this, then: Let's say you have two miners declare a workable hash at the same time. The problem is, they don't contain the same transactions for the same bitcoin. You have two legitimized routes that the coin has taken. Which is accepted?

Maybe this is an off-base question. If I really cared to learn all that much about Bit Coin, I would eventually find the uncomfortable question.

I came across this [codinginmysleep.com] without even trying, which is better than my scenario because

This is a good question, and a normal thing for the network. You would have a temporary chain fork, and the branch that gets the next block first, wins. If the second blocks on two chains also happen at the same time, the third block will be the decider, and so on. That's why it's standard to wait 6 blocks before accepting the transaction.

So, the longer chain always wins, because, there is a very high probability that more processing power went into it.

"What exactly stops the government from coming up with some other collection of numbers with different properties and claiming that they are also bitcoins?"

Other people agreeing with them? The "properties" of a Bitcoin aren't secret. Claiming something is a Bitcoin isn't something a person does, it is something a computer does. There is a complete transaction trail for every coin back to the moment it was mined including the ability to verify that it qualified at the moment it was mined and every client has a copy of it. When you send me a coin that trail is audited repeatedly by third party miners only becomes part of the audit trail with enough verification.

Every hacker and cryptographer and their dog has been trying to find a way to do what you suggest for the past four years (though most have already given up) and the best they've found is a theoretical way that requires controlling >51% of all mining power. A government that was willing to spend enough money might be able to do that (there is more demand than mining hardware as it stands so you can't just throw money at it) but the community can tell if someone actually has >51% of the mining power.

Party B would never need to sue Party A. The network would reject the fake transaction and it would never become part of the publicly viewable audit log. If you present the relevant address any judge could verify a transaction or lack of one along with anyone else who cared to.

The anonymity that people talk about with Bitcoin comes from the fact that there is nothing to indicate who any particular address is controlled by. The actual flows of coins between the addresses are all public record. That is why people use coin tumblers. With a coin tumbler you can get Bitcoin back out that is unrelated to the coin you put in. Even then, large transactions and conspicuous sums can be used for forensic accounting.

There is nothing whatsoever preventing people from starting an arbitrary number of distinct chains(indeed, there was a bug not long ago that accidentally bifurcated things, until one fork was quashed). However, unlike conventional counterfeits, you can't pretend that a bitcoin from chain A is actually a bitcoin from chain B or the reverse. Since each chain contains a finite(and, even with divisibility not all that large) number of the things, and data loss fuckups will probably reduce the number over time,

i'm not entirely sure when faced with the same mental vomit over and over again why it is my responsibility to find a new creative path to sanity for the crackpot. it is the crackpot's responsibility to make fucking sense

you have a great future in hollywood writing scripts for simpleminded shallow movies with bad dialog

sadly, here, your comments only serve to painfully demonstrate the social/ mental handicap that keeps you imprisoned on your paranoid fringe: an inability to view the world and its actors as anything more than cartoonish extremes

did you imagine yourself as clint eastwood or arnold schwarzenegger when you wrote that? did you have a toothpick in your mouth and a gun in your hand and did the music swell in the background?

protip:

if i describe you as engaging in nothing but simpleminded cartoon buffoonery, it helps not to prove my point by embracing the behavior further. you actually need to engage the world with more than stereotypical action movie t

money is nothing but an abstract representation of the value of a society. without society, there is no money. any society that is going to have good currency is one that also has good governance
therefore, the very idea of thinking about currency, divorced from good governance, is an absurdity

That's true for fractional reserve currencies. But all sorts of commodities (gold and silver most easily, of course) could be used as money completely divorced from governance - good, bad, or otherwise - because

You don't have to be a crank to see the US government is madly increasing the money supply.

I wish you were wrong, but it certainly looks that way.

What do you suppose is going to happen when the economy starts growing again?

Honestly, I think that's the lottery ticket the FED is trying to buy. They probably think that they can guide the hurricane into blowing over, and then slowly buy back the currency. (see: deflationary spiral; aka the financial bogey-man)

Unlike gold or silver, bitcoins don't even have a vague amount of price stability that lets them be a store for value. They're purely transactional currency, designed to be hard enough to make that their value probably won't change very much very fast, but easy enough to make that the quantity can expand to support a growing market (at least for a while.) So they're useful for online drug deals, where the potential currency risk is a lot smaller than the profit from making convenient transactions possible, but they're not something that it makes sense to stash in your mattress as a hedge against inflation. Their value isn't backed by a useful commodity, like gold or oil, or by the ability of a government to tax its subjects, they're just backed by the fact that they're designed to be useful for some kinds of transactions that might not happen otherwise, and by the existence of exchanges where you can trade the things for cash at today's price, which is random but usually somewhat close to yesterday's.

BTCs may have fewer risks than actual currencies, because while they are subject to competitive market forces; there is actually a cost to produce a BTC.
There is guaranteed to be a finite amount of BTC that can ever be produced, as long as the Bitcoin network continues to function, and has not been subverted technologically. You can be relatively sure BTC will be a viable exchange medium into the future, absent governments banning it entirely.

While I appreciate, that these are a couple of risks -- it could very well be that coins and cash currencies also have risks, even greater market risks than BTC -- resulting in BTC being a safer long-term storage, and currencies such as USD being a better idea for consumers for short-term exchange. They have a different set of risks: With USD, for example, the US treasury can print a large amount of money at any time; they can declare certain bills worthless; if money is in the bank, there is a chance that it could be seized without the knowledge of the account holder (until one day, when you really need that money and coincidentally some creditor or ID thief took it today...); there is a risk of identity theft (traditional currencies placed with a bank could be stolen -- because when you have physical dollars, they are easily stolen by physical thieves or fraudsters, and social engineering and insecure secrets such as SSN digits could be used against a bank to coerce them to make unauthorized transfers).

The government may devalue the currency, through poor management.
Your bank may change their policies, e.g. they may quietly start charging inactive account fees on your savings account.

With BTC, your wallet kind of is your bank account as well, and you are not so reliant on a specific third party providing you a service -- to maintain the account terms, deposit interest rates, no maintenance fees, etc.

Furthermore, your bank can make an accounting error, or an employeen can conduct a fraud in which the result is that money you did not spend is removed from your account. With BTC, you are assured this can't happen, without someone compromising cryptographic secrets that you can secure.

With BTC, while the possibility of theft through malware exists, you don't need a bank, and you have control over how you secure the cryptographic secrets required to transfer your Bitcoins, without requiring a specific third party to act -- if you are sufficiently paranoid, you can divide bitcoins into as many accounts as you like, and very effectively eliminate the possibility of large theft; even "legal" theft, without you're knowing about it until the check bounces -- when some creditor decided to levy your bank account.

Not even close. They are designed to be hard to make, to only be made at a pre-determined rate, and for new supplies to eventually run out. Bit-coins are designed to be limited in supply.

Indeed.. under the current design, the eventual amount of bitcoins available is guaranteed to be finite.

There are really only two forseeable long-term outcomes with regards to the value of bitcoins....
(1) They tend to become worth zero or less over time relative to their worth at previous times [either because of a flaw in the underlying crypto algorithms compromises the protocol, or, a significantly large number of people stop using the bitcoins, in sufficient number that Bitcoins become unusable as as an asset for trade/exchange, and therefore consumer demand for bitcoins eventually shrinks to a smaller amount at a given market clearing price] -- if there is a plentiful supply of people who have bitcoins (for example, through mining), and a very small amount of demanded product available for purchase that require Bitcoins to purchase, the demanded quantity for bitcoins will decrease, and they will eventually become worthless --- However, as long as there are demands for products that vendors will accept bitcoins for
(ESPECIALLY services in demand for which v

At present, BitCoin has "rampant inflation" in that each block makes a fair number. In theory, they'll near the 21M BTC limit eventually, but..

Who controls the BitCoin protocol change vote? Ain't the people who own BitCoins. It's the people who mine BitCons. Why won't they simply vote themselves more BitCoins by removing the 21M BTC limit? Of course they'll do exactly that! duh! People always vote themselves free money.

In fact, if BitCoin actually annoyed government inflationary policy, the governmen

Actually, they're designed to be relatively easy to make. It's an ingredient of the snake-oil part of bitcoin.

People needed to use CPU cycles to "mine" them, thus they feel like they've accomplished something. They feel like they've contributed. They have earned something of value. It's a very nice, exciting, warm and fuzzy feeling. Having gotten something from nothing, they go from being skeptics, to converts.

There is a semi-legitimate social (not technological) reason for this. If I say I wanted to start an online currency, but I'm starting with all the cash, nobody is going to buy from me. On the other hand, if I say that other-people-not-me are the originating parties, people don't assume it's a thinly veiled money grab.

(To be perfectly clear, I do not believe Bit Coin to be a thinly veiled money grab. I do believe it to be ephemeral. I just can't figure out if it's unthinking zealotry, a complex scam, or an inevitable part of our zeitgeist - a word I swore I would never use.)

They're divisible to a huge extent, the problem though is that the total that can come into existence is already known and they don't come into existence at an impartial party, they come into existence as somebody's property.

And because of the fixed maximum number that can exist and the known curve of when they're going to be hitting various percentages, there's a strong incentive to hold onto your BTC, if you have any, and hope that other people bid up the price you can get when you sell.

Yes but if the Bitpenny is practically used like the dollar today that means 1 BTC is worth $100. This solves the same problem. We always have enough units of value to cover the volume of transactions being conducted in Bitcoin. Doing so indicates the economy has grown. If you do that by adding currency you create units by stealing value from all the existing currency units and then picking and choosing who to give them to. If you do that with a fixed amount of currency and create new units through division then you increase the value of the existing currency and thereby make using the smaller units feasible. The value is given to those who already hold currency instead of taken from them.

If the Bitcoin market continues to grow there will come a time when very few people are wealthy enough to have an entire whole BTC in their wallet.

There is nothing more real about the faith that you'll be able to exchange gold for things you need than that you will be able to exchange dollars. Every currency is based, at some point, on the belief that it will be able to be exchanged for something. It doesn't matter if that faith is direct, as with fiat currency, or indirect, as with metal backed currency. The dollar has been more stable since we got off gold. Yes, inflationary, but stable. That's a good thing. Our currency is worth what people think it is worth, instead of being pegged to the whims of the gold market.

Dollars aren't based on gold or silver either, and unlike bitcoins the decision to create dollars happens through a totally opaque process that has no basis in economic reality. If we had a commodity backed currency I would agree there's no need for bitcoins, but we don't. Dollars are backed by and endlessly increasing supply of debt, which guarantees huge fluctuations of (perceived) value over time.

Dollars *are* backed by debt. And that debt seemed to be ever increasing, at least up until 2007-ish when the housing market finally imploded.

The Fed doesn't really control or constrain the supply of money, though many economists still believe that they do. It's the double entry book-keeping rules of the banking industry that predominantly create and control the supply of money. A new loan creates both a future obligation and current spending power that didn't exist before. Sure the bank has to find a small amount of money to meet their deposit insurance, liquidity and capital requirements, but that's tiny in comparison to the value of new loans.

Since the level of debt is now such a huge factor in the economy, small accelerations and decelerations in the growth of debt have an enormous impact on the economy. And when everyone recently slammed on the debt brakes [typepad.com] the economy practically died.

More like a tad full of shit. You can rattle off anecdotes about those hippie-dippie liberals who can't hold down a job or keep track of their money, and I can probably rattle off a longer list of liberal friends of money who do an amazing job of managing money or even starting and running business, while I have a list of conservative friends and acquaintances who are only a few steps away from being in the poverty line. Some people are responsible and some aren't, and it has little to nothing to do with broad political affiliations.

You claim to be an independent, but almost everything in your post is a talking point from the Fox News crowd. We have the myth that liberals like to blame other people for everything, that they can't manage money, that they don't have jobs, and that conservatives really *understand* economics, even though they propose ridiculous ideas like flat taxes and trickle-down, and believe that the Laffer Curve is a valid model to be used for serious tax and policy decisions.

No, you aren't a hypocrite. You're just another conservatard drone who is too chicken to admit it.

One of the best features of science is that it allows us to make predictions.

For example, to calculate the trajectory of a cannonball we do not need an almanac of cannonball weights cross-referenced by gunpowder loads and indexed by cannon type. We have a handful of formulas for the future behaviour of any projectile based on simple measurements - mass, force, air resistance, and so on. The formulas work for cannonballs as well as electrons as well as planets.

"but they're not something that it makes sense to stash in your mattress as a hedge against inflation"Actually they are. Bitcoin handles the problem of having enough value units by being highly divisible. So where inflationary currencies produce more currency bitcoin simply divides into smaller units for the typical transaction. At $70 for a BTC that already is no longer a full BTC. A typical transaction is likely a tenth of that or a few hundredths of that. Inflation requires central banks to loan out the

Volatile??? Have you even been following bitcoin over the past 2+ years?

I dunno about the guy you are replying to but I have been following bitcoin and it has certainly been volatile. It's not all that unusual for the value of bitcoins compared to major world currenecies to double or halve within a single month.

So you talk about 2+ years and then link to a chart that only covers about 1.5 years and therefore conviniantly misses off the 2011 peak. Yes in the last month or so the value of bitcoin has surpassed it's 2011 peak but only time will tell whether the current price is st

I think more regulation on Bitcoin trades can only serve to help protect people from Ponzi schemes. No, I'm not like those other people who call Bitcoin a Ponzi, they are not. However, the exchanges that are now springing up are amost a perfect recipe for one. Someone sets up an exchange, pople open accounts to which they deposit money to engage in bitcoin trading, exchange operators help themselves to funds, either for operational expenses or to line their pockets, and instead back the accounts with bit

The difficulty of mining bitcoins (and hence the speed that a given set of hardware mines bitcoins) is directly proportional to the amount of computing power mining bitcoins. If the amount of computational power in the system goes up, that means that (in the short term), the amount of bitcoins mined in a given period goes up. Every X number (I forget exactly how many) of blocks (the basic structure of bitcoin as a currency, currently each block "creates" 25 BTC, given to the block's solver. The amount of BTC earned per block is halved at distinct intervals, but that's not relevant here.), the bitcoin system (i.e., each client that is creating these blocks, as there is no central server) analyzes the length of time it took solve all X blocks. If that time is less than Y (again, don't recall the exact number, but I think it was a week), then the difficulty of mining blocks is increased by a proportional amount. If it was greater than Y, the difficulty is decreased.

What this all means is that if someone were to bring an astronomical amount of computing power to bear on mining bitcoins, the difficulty of mining bitcoins would automatically compensate, and the addition of new bitcoins into the marketplace would proceed at the same rate. Granted, the person at the head of all this computing power would be the recipient of most new bitcoins, but the currency would not be destabilized (at least through computing power alone.) There would be other things said person could do to destabilize bitcoins, though, through either Financial or Technical means. They could hoard all BTC they mine, causing the price of BTC to rise. They could sell BTC they mine at ridiculously low prices, causing the price of BTC to plummet. If they comprise more than 60% or so of all computing directed at bitcoin mining, they could hijack the blockchain, and would be able to spend bitcoins they don't own, or double spend their own bitcoins.

I'm fairly sure that anyone who attempts to hijack bitcoins through raw computing power would end up spending more on said computing power than they would earn from bitcoins. So unless a malicious billionaire or an intrepid hacker organization with a few supercomputers in their botnet decide one day that they really don't like bitcoins, it doesn't seem likely to happen.

The problem isn't mining the bitcoins, it's cracking the crypto which encodes how many bitcoins you own. Cryptographic currencies are a bet premised on the expectation that cracking capacities won't increase very fast.

Of course you can regulate bitcoins, just as you can regulate drugs. What you are saying is that it is easy to evade that regulation. But that's a different thing. All you need to do to regulate something is to put out laws making certain related actions illegal. This doesn't make it impossible to do it (just as the law that makes murder illegal doesn't make murder impossible), but it means that you are in trouble if they find out you do it.

That is one route for now. Another is the simple loophole, buy stick of gum for $140, comes with 2 free BTC. But I really see it as matter of time before a decentralized P2P exchange is setup.I've already figured out the basic mechanism. Bitcoin allows multisign wallets. So one signer is the network, one signer the seller (whoever has BTC), the last is the buyer (USD, EURO, Paypal, etc). As soon as a buyer and seller are matched (not just amounts, but payment type and associated escrow term) a wallet is gen

In what sense has U.S. currency been devalued? Its real purchasing power has remained quite strong over the past few decades; there hasn't been a significant erosion of real purchasing power (i.e. high inflation) since the late-70s/early-80s period of inflation.

Here's the CPI data:
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt [bls.gov]
Even if you accept that it's representative data, there has still been persistent inflation. Even if it's only 2-3 percent/year, it adds up. One dollar today is worth 79 cents in 2003.